Reed Smith secured a precedential victory in the Fourth Circuit for client Santander Consumer USA Inc., holding that the Fair Debt Collection Practices Act (“FDCPA”) does not apply to a consumer finance company trying to collect debts owed to itself. In Henson v. Santander Consumer USA Inc., No. 15-01187, the court held that such a company is not a “debt collector” subject to the FDCPA when the company purchased the debts in a portfolio of consumer debts—even if some of the debts were in default when acquired.

Because the FDCPA imposes numerous restrictions and requirements on debt-collection activities, it is crucial for consumer finance companies to know when it applies to them. But whether the FDCPA applies to particular debt-collection efforts depends on whether the company is a “debt collector” or a “creditor” under the Act’s notoriously complex definitional provisions.

In Henson, the plaintiffs alleged that they and a class of other borrowers obtained loans from CitiFinancial Auto, and that Santander violated the FDCPA by attempting to collect on those loans after they had defaulted on them. The plaintiffs argued that Santander is a debt collector under the FDCPA, not a creditor, because the loans were in default when Santander acquired them. On appeal, plaintiffs were supported by amicus briefs filed jointly by the AARP, the National Consumer Law Center; the National Association of Consumer Advocates; Civil Justice, Inc.; Public Justice Center, Inc.; Maryland Consumer Rights Coalition, Inc.; and the Maryland attorney general.

Santander, represented by Travis Sabalewski and Robert Luck of Reed Smith’s Financial Industries Group, first persuaded the Maryland District Court to dismiss the claim. On appeal, Kim Watterson and Richard Heppner of the Appellate Group persuaded the Fourth Circuit three-judge panel to affirm in a precedential opinion by Judge Paul V. Niemeyer. The Fourth Circuit adopted Santander’s view that, despite the FDCPA’s “somewhat complex and technical regulation of debt collector practices,” the statute’s plain language and purpose showed that “it generally does not regulate creditors when they collect debt on their own account and that, on the facts alleged by the plaintiffs, Santander became a creditor when it purchased the loans before engaging in the challenged practices.” The court also rejected the plaintiffs’ and their amici’s reliance on various definitional exceptions to subject Santander to FDCPA regulation.

The Fourth Circuit’s ruling—on a question of first impression in the Circuit—provides consumer finance companies needed clarity on the scope of FDCPA liability.